NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the rating on Chugach Electric Association,
Inc.'s (Chugach) implied senior secured obligations at 'A-'. The rating
takes into account Chugach's $525 million of first mortgage bonds, but
is assigned to implied obligations since all of the outstanding debt is
privately placed.

The Rating Outlook is Positive.

SECURITY

The obligations are secured under the mortgage indenture, which became
effective on Jan. 20, 2011. The indenture imposes a lien on
substantially all of Chugach's assets to secure its existing long-term
debt.

DOMINANT ELECTRICITY PROVIDER: Chugach is the major electricity provider
in Alaska, serving a diversified customer base in and around the heavily
populated Anchorage area. Electric service is also provided to the
Fairbanks area on an economy (non-firm) energy sales basis.

PLANNED REDUCTION IN WHOLESALE SALES: Two of Chugach's wholesale
cooperative customers have announced plans to end their contracts with
Chugach in 2014. Chugach has planned for this event and expects to be
able to handle any sales reduction, without having a material negative
effect on financial results.

SUPPORTIVE REGULATORY TREATMENT: Chugach is subject to rate regulation
by the Regulatory Commission of Alaska (RCA). Recent rate decisions have
been quite constructive and supportive of Chugach's business model.

HIGHLY RELIANT ON SINGLE FUEL: The utility relies extensively on natural
gas from local sources for its primary source of fuel. With the end of
favorable legacy gas contracts in 2011, new fuel supplies at reasonable
prices will be important in Chugach's ability to maintain sound
financial metrics.

WHAT COULD TRIGGER A RATING ACTION

MEETING UPDATED BUSINESS PLAN: Greater clarity with regard to possible
extension of wholesale power contracts after 2014, successful
performance of a new, more efficient generating plant and further
certainty to future natural gas supplies, could result in a rating
upgrade.

CREDIT PROFILE

Chugach is the largest electric utility in Alaska providing electric
service to approximately 81,339 service locations in the Anchorage and
northern Kenai Peninsula areas. The company also provides service, under
separate wholesale power contracts, to three wholesale customers serving
about 92,400 ultimate meters. The three wholesale customers include:
Matanuska Electric Association, Inc. (MEA), Homer Electric Association,
Inc. (HEA) and the city of Seward (Seward). Chugach also provides
economy energy service (non-firm energy sales) to Golden Valley Electric
Allocation, Inc. located in Fairbanks, Alaska.

Both HEA and MEA have notified Chugach that they do not intend to renew,
extend or modify their existing wholesale power contracts when they
expire on January 1, 2014, and December 31, 2014, respectively. Chugach
has been planning for the termination of these power supply
relationships for several years. As a result, Chugach expects to retire
in place its less efficient assets upon the expiration of these
contracts after having recovered its costs, and will replace them with a
more efficient facility sized to serve the utility's projected retail
load.

SUPPORTIVE RATE REGULATION

Chugach's relationship with the RCA has improved in recent years. More
supportive rate decisions and the implementation of the Simplified Rate
Filing (SRF) process by the RCA demonstrate a better working environment
between the two parties. In addition, Chugach recovers fuel and
purchased power costs on a direct, dollar-for-dollar pass-through basis
in accordance with a quarterly fuel and purchased power rate adjustment
process. Chugach's current RCA authorized Times Interest Earned Ratio
(TIER) is 1.30 x long-term interest expense. Fitch views this favorably
and considers RCA support to be a positive factor.

Chugach's retail rates are competitive relative to other Railbelt
utilities in Alaska. Chugach's three-year average retail rate from 2007
to 2009 was 12.9 cents/kilowatt hour. This was far below the average for
other Alaska electric cooperatives of 16.8 cents/kilowatt hour and
Alaska municipals of 13.2 cents/kilowatt hour. With costs of additional
generation and new fuel supply contracts, Chugach forecasts that retail
rates will average about 15 cents/kilowatt hour in 2015 and beyond.
Wholesale rates are expected to be around 9 to 10 cents/kilowatt hour.

GENERATING ASSETS UPDATED

Chugach's generation portfolio includes 462.6 megawatts (MW) of
installed capacity, comprised of a combination of natural gas and
hydroelectric power, which represents approximately 50% of the state's
capacity. Chugach has been participating in the development of a 183 MW
combined cycle natural gas-fired generation plant. The Southcentral
Power Project (SPP) is configured as a 3x1, with GE LM6000 gas turbine
packages. In addition to better fuel efficiency, the SPP will provide
Chugach a transition plan that more effectively incorporates future
alternative generation without losing thermal efficiency and avoids
substantial investment in existing older technology generating units.
SPP is jointly owned with Anchorage Municipal Light & Power (ML&P), with
Chugach owning 70% of the new plant's output and ML&P owning the
remaining 30%. Chugach will also be entitled to its share of duct-firing
capacity, which will provide an additional 12 MW. The majority of
construction of the project was completed in late 2012 and the plant is
expected to achieve commercial operation in the first quarter of 2013.
Chugach is currently finalizing engineering studies to determine the
plant's ability to handle dual-fuel capability.

ADDITIONAL FUEL SUPPLY BEING DEVELOPED

Approximately 89% of Chugach's energy is generated from natural gas.
Chugach's favorably-priced legacy gas contracts ended April 2011. New
fuel contracts were negotiated in recent years and Chugach currently has
fuel contracts in place to fill 100% of its needs through December 2014,
70% through December 2015 and 40% in 2016. Natural gas used by Chugach
and all other Railbelt utilities is produced within the Cook Inlet
Basin. Chugach believes there is sufficient gas available in the area
through at least 2018; and expects future supplies, supplemented by new
drillers and gas storage, to be adequate to meet extended regional needs.

FINANCIAL PERFORMANCE GOOD

While Chugach is legally required to maintain margins for interest
coverage of 1.10x (in each fiscal year) pursuant to the bond indenture,
both management's financial target for budgeting and the RCA publicly
prescribe interest coverage of 1.30x. Additionally, management plans to
increase its equity ratio, reaching 40% by 2021 and will resume capital
credit disbursements beginning in 2016.

The five-year capital projects plan for the period 2013-2017 is well
below recent levels, estimated at a reasonable $167 million, importantly
reflecting the completion of SPP. Chugach expects to fund the majority
of future costs with internal funds, grants, municipal reimbursements
and customer contributions. Financing needs are modest at $38 million,
which will be met by commercial paper and small bank loans.

Additional information is available at 'www.fitchratings.com'.
The ratings above were solicited by, or on behalf of, the issuer, and
therefore, Fitch has been compensated for the provision of the ratings.

In addition to the sources of information identified in Fitch's
Revenue-Supported Rating Criteria and U.S. Public Power Rating Criteria,
this action is informed by information by CreditScope.

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